U.S. v. Envicon Development Corp.

Citation153 F.Supp.2d 114
Decision Date27 March 2001
Docket NumberNo. CIVA3:97CV2703(JCH).,CIVA3:97CV2703(JCH).
PartiesUNITED STATES of America, Plaintiff, v. ENVICON DEVELOPMENT CORPORATION, et al., Defendants.
CourtU.S. District Court — District of Connecticut

William A. Collier, U.S. Attorney's Office, Hartford, CT, for plaintiff.

Edward P. Loughlin, Charles Phillip Reed, Loughlin, FitzGerald, Kamp, Henrici, Wallingford, CT, Kenneth F. Nye, John F. Redwine, Dallas, TX, for Gene E. Phillips, Oscar W. Cashwell, defendants.

Thomas A. Rouse, Aimee Jennifer Wood, Pullman & Comley, Bridgeport, CT, Peter J. Riley, Julia E. Jones, Thompson & Knight, Dallas, TX, for Donald W. Hair, Glen Adams, defendants.

Michael J. Donnnelly, Robert A. White, Jessica Brooke Gauvin, Murtha Cullina LLP, Hartford, CT, for McNeil Re Mgmt, Inc., defendant.

RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 143, 149, 152]

HALL, District Judge.

The plaintiff, on behalf of the Secretary of the Department of Housing and Urban Development ("HUD"), brought suit under 12 U.S.C. § 1715z-4a to recover misappropriated funds and damages resulting from the improper use of assets and income derived from Mill Pond Village, a multi-family housing complex located in Connecticut and whose mortgage is insured by HUD under Title II of the National Housing Act. The owner and manager of the property is Mill Pond Village Associates ("MPVA"), a limited partnership formed pursuant to Connecticut law and registered in the state of Connecticut.

The defendants remaining in the suit are McNeil Real Estate Management Corporation, the former property manager of Mill Pond Village; Gene Phillips, former president and chairman of Southmark Corporation; and Oscar Cashwell, former assistant to the president of Southmark.1 Southmark was a majority shareholder of Envicon Capital Corporation, which owned Envicon Development Corporation, the general partner of MPVA.

Pending before the court are the motions for summary judgment of Phillips and Cashwell [Dkt. No. 143] and McNeil [Dkt. No. 149], and the motion for partial summary judgment against McNeil only of the plaintiff [Dkt. No. 152]. In support of their motion, Phillips and Cashwell argue that: (1) the suit is barred by the applicable statute of limitations under subsection 1715z-4a(d); (2) Phillips and Cashwell are not persons within the definitional section of section 1715z-4a; (3) any liability Phillips and Cashwell faced ended when they left Southmark; and (4) the plaintiff cannot establish that Phillips and Cashwell benefitted personally from, or had knowledge of, any disbursements of funds by MVPA in violation of section 1715z-4a. In support of its motion, McNeil argues that (1) the suit is barred by the applicable statute of limitations under subsection 1715z-4a(d); (2) the issue of McNeil's liability is barred by res judicata from MPVA's bankruptcy proceedings in the Northern District of Texas; and (3) McNeil is not liable under section 1715z-4a because the majority of the funds at issue as having been improperly used or disbursed by the defendants were held in a retainer trust account with MPVA's bankruptcy attorneys that was available for use by MPVA during the time McNeil managed Mill Pond Village. The plaintiff seeks summary judgment against McNeil only on McNeil's liability for double damages under section 1715z-4a. For the reasons discussed herein, the motion of Phillips and Cashwell [Dkt. No. 143] is GRANTED, the motion of McNeil [Dkt. No. 149] is DENIED, and the plaintiff's motion [Dkt. No. 152] is GRANTED.

I. FACTS

The following facts are undisputed.2 MPVA is a 360-unit apartment complex in Broad Brook, Connecticut, with a mortgage held by the Connecticut Housing Finance Authority ("CHFA") and insured by the Secretary of HUD. MPVA is a limited partnership formed to own Mill Pond Village. By the late 1980s, Envicon Development was the sole general partner in MPVA. McNeil was the property manager of Mill Pond Village for most of 1991, until a bankruptcy court order substituted SHL General Partner II, Ltd. as property manager on September 27, 1991.

In June 1974, MPVA entered into a Regulatory Agreement ("Regulatory Agreement" or "Agreement") with the Secretary of HUD in order to receive mortage insurance from HUD. This Regulatory Agreement provided, in part:

Owners [MPVA] shall not file any petition for bankruptcy or for a receiver or in insolvency or for reorganization or composition, or make any assignment for the benefit of creditors or to a trustee for creditors, or permit an adjudication in bankruptcy or the taking possession of the mortgaged property or any part thereof by a receiver or the seizure and sale of the mortgaged property or any part thereof under judicial process or pursuant to any power of sale, and fail to have such adverse actions set aside within forty-five (45) days.

McNeil's Statement of Undisputed Facts (Dkt. No. 151), Ex. G at ¶ 8. The Regulatory Agreement thus expressly forbade MPVA from filing for bankruptcy.

The Agreement further provides, in pertinent part:

Upon a violation of the above provisions of this Agreement by Owners [MPVA], the Secretary may give written notice, thereof, to Owners, by registered or certified mail.... If such violation is not corrected to the satisfaction of the Secretary within thirty (30) days after the date such notice is mailed or within such further time as the Secretary determines is necessary to correct the violation, without further notice the Secretary may declare a default under this Agreement effective on the date of such declaration of default and upon such default the Secretary may:

. . . . .

(d) Apply to any court, State or Federal, for ... such other relief as may be appropriate....

Id. at ¶ 11. The Agreement defines "project" as "the mortgage property and all its other assets of whatsoever nature or whatsoever situate, used in or owned by the business conducted on said mortgaged property, which business is providing housing and other activities as are incidental thereto." Id. at ¶ 13(e).

On June 11, 1991, MPVA, acting through McNeil, transferred $125,000 to a retainer account at Akin, Gump, Hauer & Feld and separately on June 11, 1991, $10,000 and $11,000 to retainer accounts at Murtha, Cullina, Richter & Pinney. A bankruptcy proceeding for MPVA, titled In re: Mill Pond Village Associates, was filed under Chapter 11 in the United States Bankruptcy Court for the Northern District of Texas on June 12, 1991. Officials at the Hartford HUD officer became aware of MPVA's filing of a bankruptcy petition no later than July 8, 1991.3 HUD received a Notice of Hearing of Debtor's Application to Approve Employment of Attorneys [McNeil's Statement of Undisputed Facts (Dkt. No. 151), Ex. D] related to the MPVA bankruptcy no later than July 15, 1991. HUD also received copies of the First Motion of Akin, Gump, Hauer & Feld for Distribution of Retainer [McNeil's Statement of Undisputed Facts (Dkt. No. 151), Ex. B], filed in the bankruptcy court on September 13, 1991 and received by HUD on the same day, and Second Motion of Akin, Gump, Hauer & Feld for Distribution of Retainer [McNeil's Statement of Undisputed Facts (Dkt. No. 151), Ex. C], filed in the bankruptcy court on October 11, 1991 and received by HUD on the same day. These documents were then forwarded to HUD's legal department.

In May 1992, HUD received a May 19, 1992 letter transmitting an audit of MPVA, which audit reflected the payments transmitted to Akin, Gump and Murtha, Cullina from project funds at a time when MPVA was not in a surplus cash position. The plaintiff filed the instant action on December 24, 1997.

From the early 1980s until January 17, 1989, Phillips was president and chairman of Southmark. On January 17, 1989, Phillips resigned from Southmark and ended any affiliation therewith. From the early 1980s until January 17, 1989, Cashwell was an assistant to Phillips at Southmark. Cashwell resigned from Southmark, and ended any affiliation therewith, on June 1, 1989.

II. STANDARD OF REVIEW

In a motion for summary judgment, the burden is on the moving party to establish that there are no genuine issues of material fact in dispute and that it is entitled to judgment as a matter of law. See Fed. R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); White v. ABCO Engineering Corp., 221 F.3d 293, 300 (2d Cir. 2000). A court must grant summary judgment "`if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact....'" Weinstock v. Columbia Univ., 224 F.3d 33, 41 (2d Cir. 2000) (quoting Fed.R.Civ.P. 56(c)). "An issue of fact is `genuine' if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Konikoff v. Prudential Ins. Co. of Am., 234 F.3d 92, 97 (2d Cir.2000) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). "An issue of fact is `material' for these purposes if it `might affect the outcome of the suit under the governing law.'" Id. (quoting Liberty Lobby, 477 U.S. at 248, 106 S.Ct. 2505).

"[I]f after discovery, the nonmoving party has failed to make a sufficient showing on an essential element of [its] case with respect to which [it] has the burden of proof," summary judgment is appropriate. Hellstrom v. U.S. Dep't of Veterans Affairs, 201 F.3d 94, 97 (2d Cir.2000) (internal quotation marks omitted) (quoting Berger v. United States, 87 F.3d 60, 65 (2d Cir.1996)). "The non-moving party may not rely on conclusory allegations or unsubstantiated speculation. Instead, the non-movant must produce specific facts indicating `that a genuine factual issue exists. If the evidence [presented by the non-moving party] is merely colorable, or is not significantly probative, summary judgment may be granted.' To defeat...

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    • August 15, 2002
    ...case, HUD did not discover the unauthorized expenditures before it began auditing the project, id. at 439.7 United States v. Envicon Dev. Corp., 153 F.Supp.2d 114 (D.Conn.2001), held that HUD must have actual knowledge, rather than merely constructive knowledge, of improper expenditures bef......
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    • October 3, 2012
    ...but something less than to confirm with absolute certainty as to all possible material details"); United States v. Envicon Development Corp., 153 F. Supp. 2d 114 (D. Conn. 2011) (HUD must have actual knowledge, rather than constructive knowledge, of improper payments before limitations peri......
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    ...but the latest discovery of the misuse of income or assets in violation of the Regulatory Agreement. See United States v. Envicon Dev. Corp., 153 F.Supp.2d 114, 121 (D.Conn.2001) (stating that “the ‘latest date’ ... mean [s] the date the Secretary receives documentation or other information......
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